Ascension Health and Providence St. Joseph in Mega Hospital Merger

Just as CVS and Aetna have announced a deal to shake up the United States healthcare system, Ascension Health and Providence St. Joseph have announced a merger between the hospital owners that will continue the trend towards consolidation in the hospital sector. The combined company would own 191 hospitals and have revenue of $45 billion. Both hospital systems are non-profit.

The economic landscape of the United States healthcare system has dramatically changed in recent decades. Once, the hospital was an independent entity with arms-length relationships with physicians, is now morphing into an integrated value chain in which primary care and hospital services that leverage scale throughout national locations. Larger scale also aids in hospital systems ability to negotiate better pricing with insurers.

The ten largest hospital chains in the country currently control about 18% of hospital revenue and 17% of the number of hospitals. Ascension and Providence are currently the second and third largest hospital chains by revenue in the country.

Source: Economics Wire estimates.

For health consumers and policymakers, consolidation in the healthcare industry is a catch-22. Larger healthcare networks can find ways to become more efficient through the deployment of better technology, less waste on unnecessary tests, and the ability to coordinate care across multiple sites. But, they also represent a means for hospitals to negotiate higher prices with insurers, potentially driving up costs for the end consumer.

Hospitals are also facing new financial difficulties as the benefits of Obamacare recede and key provisions of the bill benefiting hospitals have come under attack.

On Thursday, another major hospital merger was announced between Dignity Health and Catholic Health Initiatives, both also among the top ten hospital networks in the country. Their combined size would be nearly $25 billion and place it as the third largest hospital system in the country.